3rd estimate of Q2 GDP and annual revision; August’s income and outlays, durable goods and new home sales

The key economic releases of last week were the 3rd estimate of 2nd quarter GDP from the Bureau of Economic Analysis, which included an annual revision covering the prior five years, and the August report on Personal Income and Spending, also from the BEA, which includestwo months of data on personal consumption expenditures and hence will account for more than 47% of 3rd quarter GDP….other major agency reports released this week included the August advance report on durable goods and the August report on new home sales, both from the Census bureau, and the Case-Shiller house price indexes for July from S&P Case-Shiller, who reported that their national home price index based on relative May, June and July home sales prices was 5.0% higher than their price index for the same three months of a year earlier…in addition, this week also saw the release of the Chicago Fed National Activity Index (CFNAI) for August, a weighted composite index of 85 different economic metrics, which rose to +0.12 in August from –0.42 in July, after the July index was revised down from –0.34; that left the more often cited 3 month moving average of the index at –0.17 in August, down from a revised -0.13 in July, which, as a negative number, would indicate national economic activity has been below the historical trend over the summer months..

The week also saw the release of two more regional Fed manufacturing surveys for September: the Kansas City Fed manufacturing survey, covering western Missouri, Colorado, Kansas, Nebraska, Oklahoma, Wyoming and northern New Mexico, reported its broadest composite index fell to -8 in September, down from -3 in August but up from -13 in July, meaning a modest plurality of that region’s manufacturers reported deteriorating conditions this month, while the Richmond Fed Survey of Manufacturing Activity, covering an area that includes Virginia, Maryland, the Carolinas, the District of Columbia and West Virginia, reported its broadest composite index fell from −19 in August to –21 in September, their lowest index reading since June 2020, and which means that a slightly larger  majority of that region’s manufacturers continued to report deteriorating business conditions during the month...

Third Estimate of 2nd Quarter GDP & Revisions From 2019 to Present

The Third Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis released on Thursday included an annual revision, which in this year’s case revised GDP data from first quarter of 2019 through the first quarter of 2024, resulting in revisions to GDP, GDP by industry, gross domestic income, and related components… on a business cycle basis, this report indicates that the overall economic growth rate during the expansion from the second quarter of 2009 through the fourth quarter of 2019 was revised to 2.4%, up from the previously reported growth rate of 2.3%; that for the pandemic induced contraction from the fourth quarter of 2019 through the second quarter of 2020, real GDP decreased at an annual rate of 17.5%, the same contraction rate as was previously published, and that during the period of economic expansion from the second quarter of 2020 through the first quarter of 2024, real GDP increased at an annual rate of 5.2 percent, 0.3 percentage points higher than the 4.9% growth rate that was previously estimated...

On an annual basis, this report showed that the GDP growth rate for 2019 was at a 2.6% annual rate, revised from the previously reported 2.5% rate, that the GDP contraction rate for 2020 was at 2.2%, statistically the same as was previously indicated, that the growth rate of 2021 was revised to 6.1% from the 5.8% rate previously reported, that the growth rate of 2022 was revised to 2.5% from the 1.9% rate previously reported, and that the GDP growth rate for 2023 was at a 2.9% annual rate, revised from the previously reported 2.5% annual growth rate….for 2023, that was as 1st quarter GDP grew at a 2.8% rate, revised from the 2.1% growth rate reported a month ago, and as the second quarter growth rate was revised from the previously published 2.1% to 2.4%, and as the 3rd quarter’s GDP growth rate was revised from 4.9% to 4.4%, and as the fourth quarter’s growth rate was revised from 3.4% to 3.2%…

Over the 5 year period from the end of 2018 to the end of 2024, personal consumption grew at a 2.8% rate, revised from the 2.6% growth that was previously reported…total private investment also saw its five year growth rate revised higher, from 2.0% to 2.6%, while exports grew at a 0.9% rate over the period, revised from what was previously reported as a 0.6% growth rate…meanwhile, imports grew at a 2.5% annual rate over those 5 years, revised from the 2.2% growth indicated by previous reports, while the growth of government investment and consumption was revised to a 2.1% rate from the 2.2% rate that had been indicated by reports prior to this revision…

The growth rate of the first quarter of 2024, which had last been reported at 1.4% when we reviewed the 3rd estimate of 1st quarter GDP three months ago, was revised to a 1.6% growth rate after this revision, as an upward revision to consumer spending was only partly offset by downward revisions to private inventory investment and to residential fixed investment…in addition, the price index for gross domestic purchases was revised to 3.0 percent, from 3.1%, which thus contributed a rounded 0.1 percentage point to the upward revision of real 1st quarter growth…

The first quarter’s PCE growth rate was revised from 1.5% to 1.9%, on a upward revision in the real goods consumption contraction rate from –2.3% to –1.2% and on a upward revision of real personal services growth from 3.3% to 3.4%….at the same time, the growth rate of first quarter gross domestic investment was revised down from 4.4% to 3.8%, as fixed domestic investment was revised from growing at a 7.0% rate to growing at a 6.5% rate, while the quarter’s inflation adjusted negative change in inventory growth was revised from -$26.3 billion in 2017 dollars to -$26.9 billion in 2017 dollars…. meanwhile, the growth of first quarter exports was revised from a 1.6% rate to a 1.9% growth rate, while the growth rate of the first quarter imports was unrevised at a 6.1% rate…in addition, the growth of the federal government was revised from a -0.2% contraction rate to a -0.4% contraction , while the state and local growth was revised from a 3.0% rate to a 3.1% rate…. the PCE price index for the first quarter was unrevised at +2.5%….

Those revisions to the final GDP readings of the past five years, and to the 3rd estimate of 1st quarter GDP, published as “final” just three months ago, should leave you with the sense to take even this 3rd estimate of 2nd quarter growth, which was released on Thursday, with a grain of salt…the Third Estimate of our 2nd Quarter GDP from the Bureau of Economic Analysis indicated that our real output of goods and services grew at a 3.0% annual rate in the 2nd quarter, the same growth rate that was reported in the second estimate last month, as downward revisions to personal consumption expenditures, to fixed private investment, and to net exports was offset by upward revisions to inventories and to government….In current dollars, our second quarter GDP grew at a 5.60% annual rate, increasing from what would work out to be a revised $28,624.1 billion a year rate in the 1st quarter to a $29,016.7 billion annual rate in the 2nd quarter, with the headline 3.0% annualized rate of increase in real output arrived at after annualized GDP inflation adjustments averaging 2.5% were computed from the price changes of the GDP components and applied to their current dollar change...

As we review this month’s revisions to the 2nd quarter data, remember that this press release reports all quarter over quarter percentage changes at an annual rate, which means that they’re expressed as a change that’s compounded by 4 times of that which actually occurred from one 3 month period to the next, and that the prefix “real” is used to indicate that each change has been adjusted for inflation using price changes now chained from 2017, and then that all percentage changes in this report are calculated from those 2017 dollar figures, which are then used as quantity indexes, rather than as any reality based dollar amounts….for our purposes, all the data that we’ll use in reporting the changes here comes directly from the pdf for the 3rd estimate of 2nd quarter GDP, which you can access by using the BEA’s main GDP page…specifically, we’ll be referencing table 1, which shows the real percentage change in each of the GDP components annually and quarterly since the 3rd quarter of 2020; table 2, which shows the contribution of each of the components to the GDP change for those months and years; table 3, which shows both the current dollar value and inflation adjusted value of each of the GDP components; and table 4, which shows the change in the price indexes for each of the major GDP components…the pdf for the 2nd quarter’s second estimate, which this estimate revises, is here…

Growth of real personal consumption expenditures (PCE), the largest component of GDP, was revised from the 2.9% growth rate reported last month to a growth rate of 2.8% in this estimate…that growth rate figure was arrived at by deflating the the 5.4% growth rate in the dollar amount of consumer spending with the PCE price index, which indicated dollar weighted consumer inflation grew at a 2.5% annual rate in the 2nd quarter, which was unchanged from the PCE inflation rate reported a month ago…..real (inflation adjusted) consumption of durable goods grew at a 5.5% annual rate, revised from the 4.9% growth rate reported in the 2nd estimate, and added 0.40 percentage points to GDP, as real consumption of motor vehicles, recreational goods and vehicles, and furniture and appliances all contributed solidly to the durable goods increase….at the same time, real consumption of nondurable goods by individuals grew at a 1.7% annual rate, revised from the 2.0% increase reported in the 2nd estimate, and added 0.23 percentage points to the 2nd quarter’s economic growth, as growth in consumption of groceries, gasoline and other nondurables more than offset a modest decrease in personal consumption of clothing…meanwhile, consumption of services grew at a 2.7% annual rate, revised from the 2.9% growth rate reported last month, and added 1.27 percentage points to the final GDP tally, as a 3.1% growth rate in real consumption of health care accounted for about 40% of the growth in services…

Meanwhile, seasonally adjusted real gross private domestic investment grew at a 8.3% annual rate in the 2nd quarter, revised from the 7.5% investment growth reported last month, as real private fixed investment grew at a 2.3% rate, revised from the 3.0% growth rate reported in the second estimate, while real inventory growth was somewhat greater than previously estimated….real investment in non-residential structures was revised from shrinking at a 1.6% rate to growing at a 0.2% rate, while real investment in equipment grew at a 9.8% rate, revised from the 10.8% growth rate previously reported…at the same time, the quarter’s investment in intellectual property products was revised from growth at a 2.6% rate to growth at a 0.7% rate, while the contraction rate of residential investment was revised from -2.0% to -2.8% annually…after those revisions, the increase in investment in non-residential structures added 0.01 percentage points to the 2nd quarter’s growth rate, the increase in investment in equipment added 0.49 percentage points to the quarter’s growth, the increase in investment in intellectual property added 0.04 percentage points, while the decrease in investment in residential structures subtracted 0.11 percentage points from the 2nd quarter’s GDP growth…

At the same time, the second quarter’s change real private inventories was revised from the previously reported $69.0 billion in inflation adjusted dollars to indicate inventories grew at an inflation adjusted $71.7 billion rate…that came after inventories had grown at an inflation adjusted $17.7 billion in the 1st quarter, revised from the $28.6 billion 1st quarter growth reported previously, and hence the $53.9 billion positive change in real inventory growth from that of the 1st quarter added 1.05 percentage points to the 2nd quarter’s growth rate, revised from the 0.78 percentage point addition due to greater inventory growth shown in in the second estimate, when the quarterly change in real inventory was shown at $40.3 billion...however, since growth in inventories indicates that more of the goods produced during the quarter would have been left in storage or “sitting on the shelf”, the $53.9 billion increase in their growth means real final sales of 2nd quarter GDP were smaller by that amount, and therefore the BEA found that real final sales of GDP grew at a 1.9% rate in the 2nd quarter, revised from the 2.2% rate of increase in real final sales shown in the second estimate…

The previously reported increase in real exports was revised lower with this estimate, while the previously reported increase in real imports was revised higher at the same time, and as a result the negative impact of our foreign trade on GDP was greater than in the second estimate….our real exports grew at a 1.0% rate, revised from the 1.6% rate reported in the second estimate, and since exports are added to GDP because they are part of our production that was not consumed or added to investment in our country, their growth added 0.12 percentage points to the 2nd quarter’s growth rate, down from the 0.17 percentage point addition shown in the second estimate….meanwhile, the previously reported 7.8% increase in our real imports was revised to an 8.4% increase, and since imports subtract from GDP because they represent an addition to either consumption or investment that was not produced here, their increase subtracted 1.01 percentage points from 2nd quarter GDP, revised from the second estimate’s subtraction of 0.94 percentage points…..thus our deteriorating trade balance subtracted a net rounded 0.90 percentage points from 2nd quarter GDP, revised from the rounded 0.77 percentage point subtraction that had been indicated in the second estimate…

Finally, there were also revisions to real government consumption and investment in this 3rd estimate, mostly on the Federal side, as the entire government sector grew at a 3.1% rate, revised from the 2.7% growth rate previously reported…real federal government consumption and investment was seen to have grown at a 4.3% rate from the 1st quarter in this estimate, revised from the 3.3% growth rate reported in the 2nd estimate, as real federal outlays for defense were revised to show growth at a 6.4% rate, revised from the 4.9% growth rate previously reported, and added 0.23 percentage points to 2nd quarter GDP, while all other federal consumption and investment grew at a 1.5% rate, up from the 1.2% growth rate previously reported, and added 0.04 percentage points to 2nd quarter GDP….meanwhile, real state and local consumption and investment grew at a 2.3% rate in the quarter, which was the same growth rate reported in the 2nd estimate, and added 0.25 percentage points to 2nd quarter GDP growth, as state and local investment grew at a 4.5% rate and accounted for 0.09 percentage points of that addition…note that government outlays for social insurance are not included in this GDP component; rather, they are included within personal consumption expenditures only when such funds are spent on goods or services, thus indicating there was an increase in the output of those goods or services…

August Personal Income up 0.2%, Spending Up 0.2%; PCE Prices Up 0.1%; 2 Months PCE Would Add 192 Basis Points to Q3 GDP

Like the GDP report, the Income and Outlays report for August also went through an annual revision, with its revisions also from the first quarter of 2019 through the first quarter of 2024 for all of the metrics it reports, including personal consumption expenditures (PCE), the personal income and disposable personal income data, our savings and savings rate, and the PCE price index, the inflation gauge the Fed targets….A summary of those revisions and comparisons to previously published data is provided by an extended Table 8 in the full pdf for this month’s report...since all the revisions made to personal consumption expenditures had already been incorporated into the GDP revisions that we have just reviewed, at this time we’ll only consider those revisions from recent months that are relevant to putting the August and potential 3rd quarter changes in perspective…

Also like the GDP report, all the dollar values reported by this release are seasonally adjusted and at an annual rate, ie, they tell us how much national income, spending, and savings would change over a year if August’s adjusted income and spending were extrapolated over an entire year…however, the percentage changes are computed monthly, from one month’s annualized figure to the next, and in this case of this month’s report they give us the percentage change in each annualized metric from July to August…..as they now try to explain in the opening line of the news release for this report, “Personal income increased $50.5 billion (0.2 percent at a monthly rate) in August“, which means that the annualized figure for seasonally adjusted personal income in August, $24,853.7 billion, was $50.5 billion, or a bit more than 0.2% more than the annualized personal income figure of $24,803.2 billion for July; the actual, unadjusted change in personal income from July to August, which would be on the order of one-twelfth of that size, is not given…similarly, annualized disposable personal income, which is income after taxes, rose by less than 0.2%, from an annual rate of $21,748.0 billion in July to an annual rate of $21,782.2 billion in August….the monthly contributors to the annualized $50.5 billion increase in personal income, which can be seen in the Full Release & Tables (PDF) for this release, are therefore also annualized…in August, the major reason for the $50.5 billion annual rate of increase in personal income was a annualized $58.2 billion increase in wages and salaries, which was partly offset a $20.5 billion decrease in interest and dividend income, and a $3.8 billion decrease in business proprietors’ income….

For personal consumption expenditures (PCE), BEA reports that they increased at a $47.2 billion annual rate, also by more than 0.2 percent, as the annual rate of PCE rose from $19,849.9 billion in July to $19,897.1 in August; that was after the July PCE figure was revised from the originally reported $19,580.5 billion annually, while prior months were revised as well, revisions which were already included in the concurrent 3rd estimate of 2nd quarter GDP…..total personal outlays for August, which includes interest payments and personal transfer payments in addition to PCE, rose by an annualized $48.3 billion to $20,728.9 billion annually, which left total personal savings, which is disposable personal income less total outlays, at a $1,053.2 billion annual rate in August, down from the revised $1,067.3 billion annualized personal savings in July… as a result, the personal saving rate, which is personal savings as a percentage of disposable personal income, fell from 4.9% in July to 4.8% in August, the lowest personal savings rate since June 2022…

As you know, before personal consumption expenditures can be used in the GDP computation, they must first be adjusted for inflation to give us the real change in consumption, and hence the real change in goods and services that were produced for that consumption….the BEA does that by computing a price index for personal consumption expenditures, which is a chained price index based on 2017 prices = 100, and which is now included in Table 5 in the pdf for this report….that index rose from 123.558 in July to 123.670 in August, a month over month inflation rate that’s statistically 0.09065%, which BEA reports as a 0.1% increase, following the rounded 0.2% increase in the PCE price index they reported for July…applying that August inflation adjustment to the nominal change in August spending left real PCE up by 0.14701%, or by a rounded 0.1% in August, after a real PCE increase of 0.4% in July …note that when those price indexes are applied to a given month’s annualized PCE in current dollars, it yields that month’s annualized real PCE in chained 2017 dollars, which are the means that the BEA uses to compare one month’s or one quarter’s real goods and services produced to another….the BEA’s result for that is shown in table 4 of the PDF, where we see that August’s chained dollar personal consumption total works out to 16,089.7 billion annually, 0.14689% more than July’s 16,066.1 billion, a difference that the BEA reports as +0.1%…

However, to estimate the impact of the change in real PCE on the change in GDP, month over month changes such as that don’t help us much, since GDP is reported quarterly…thus we have to compare July and August’s real PCE to the the real PCE of the 3 months of the second quarter….while this report reports real PCE for each of those months separately, we can get their annualized average from table 3 of the pdf for the revised 2nd quarter GDP report, where we find that the annualized real PCE for the 2nd quarter was represented by 15,967.3 billion in chained 2017 dollars….then, by averaging the annualized chained 2017 dollar figures for July and August, 15,474.6 billion and 15,482.9 billion respectively, we get an equivalent annualized PCE for the two months of the 3rd quarter that we have data for so far….when we compare that average of 16,077.9 billion to the 2nd quarter real PCE representation of of 15,967.3 billion, we find that 3rd quarter real PCE has grown at a 2.80% annual rate for the two months of the 3rd quarter that we have…{note the math we’ve used to get that annual growth rate: (((16,089.7 + 16,066.1) / 2) / 15,967.3) ^ 4 = 1.027996 }…that’s a pace that would add 1.92 percentage points to the growth rate of the 3rd quarter, should there be no improvement in September’s real PCE from that July & August average…

August Durable Goods: New Orders “Unchanged”, Shipments Down 0.5%, Inventories Up 0.1%

The Advance Report on Durable Goods Manufacturers’ Shipments, Inventories and Orders for August (pdf) from the Census Bureau reported that the value of the widely watched new orders for manufactured durable goods increased by $0.1 billion to $289.6 billion in August, which is considered​ virtually ​unchange​d, after ​t​hey rose by a revised 9.9% in July….July’s new orders were revised from the $289.6 billion reported last month to $289.6 billion, but that wasn’t enough to change the month over month percentage change for new orders, which remained at 9.9%….with little in those figures to alter the trajectory, year to date new orders are still running 1.3% below those of 2023, albeit a increase from the 1.4% year-to date decrease we saw in this report last month….

New orders for electrical equipment, appliances, and components, up $0.3 billion or 1.9 percent to $14.4 billion, drove August’s orders increase, while new orders for transportation equipment fell $238 million or 0.8 percent to $101,243 million, on a 7.5% decrease to $21,880 million in new orders for commercial aircraft….excluding new orders for transportation equipment, other new orders were up 0.5% in August, as the value of new orders for nondefense capital goods excluding aircraft, a proxy for equipment investment intentions, rose 0.2% to $73,705 million…

Meanwhile, the seasonally adjusted value of August’s shipments of durable goods, which will be inputs into various components of 3rd quarter GDP after adjusting for changes in prices, fell for the first time in three months, decreasing by $1.6 billion or 0.5 percent to $289.4 billion, after the value of July’s shipments was revised from $291.1 billion to $289,442 million, thus revising the previously reported 1.2% increase in July shipments to a 1.1% increase from June….a decrease of $1.9 billion or 1.9 percent to $97.1 billion in the value of shipments of transportation equipment drove the August decrease, as the value of shipments of commercial aircraft fell 9.4% to $19,004 million, while the value of shipments excluding transportation equipment rose 0.2% to $192,363 million… At the same time, the value of shipments of nondefense capital goods excluding aircraft rose 0.1% to $73,746, after falling 0.4% in July, changes that will be reflected in 3rd quarter GDP equipment investment figures, after adjusting for changes in price….

​A​t the same time, the value of seasonally adjusted inventories of durable goods, also a major GDP contributor, rose for the fourth time in five months, increasing by $0.5 billion or 0.1 percent to $529.8 billion, after the value of July’s inventories was revised from $529.7 billion to $529.3 billion, which is still a 0.1% increase from June…an increase in the value of inventories of transportation equipment led the August inventory increase, rising $4.2 billion or 0.5 percent to $896.5 billion, while the value of inventories of other than transportation equipment rose 0.1% to $357.5 billion….

Finally, the value of unfilled orders for manufactured durable goods, which is probably a better measure of industry conditions than the widely watched but volatile new orders, rose for the forty-eighth time in forty-nine months, increasing by $5.0 billion or 0.4 percent to $1,391.4 billion, after the value of July’s unfilled orders rose 0.2% to $1,386.5 billion, statistically unrevised from the 0.2% increase to $1,386.5 billion reported last month….a $4.2 billion or 0.5 percent increase to $896.5 billion in the value of unfilled orders for transportation equipment led the August increase, while unfilled orders other than those for transportation equipment were 0.2% higher at $494,964 billion…. compared to a year earlier, the unfilled order book for durable goods is now 4.0% above the level of last August, as the value of unfilled orders for transportation equipment is 6.7% above its year ago level, largely on an 11.1% increase in the value of the backlog of orders for commercial aircraft…

New Home Sales Fell in August Despite Lower Prices

The Census report on New Residential Sales for August (pdf) estimated that new single family homes were selling at a seasonally adjusted pace of 716,000 new homes a year, which was 4.7 percent (±10.6 percent)* below the revised July rate of 751,000 new single family home sales a year, but was 9.8 percent (±22.1 percent)* above the estimated annual rate that new homes were selling at in August of last year….the asterisks indicate that based on their small sampling, Census could not be certain whether August new home sales rose or fell from July, or even from those of a year ago, with the figures in parenthesis representing the 90% confidence range for reported data in this report, which has the largest margin of error and is subject to the largest revisions of any census construction series….hence, these initial new home sales reports are not very reliable and often see significant revisions…​along with this report, sales new single family homes in July were revised from the annual rate of 739,000 reported last month up to a 751,000 a year rate, while home sales in June, initially reported at an annual rate of 621,000 and revised to a 668,000 a year rate last month, were revised to a 681,000 a year rate with this report, and while May’s annualized home sale rate, initially reported at a 619,000 rate and revised from a 617,000 to a 666,000 rate last month, were revised up to a 673,000 rate with this release…

The annual rates of sales reported here are seasonally adjusted after extrapolation from the estimates of canvassing Census field reps, which indicated that approximately 58,000 new single family homes sold in August, down from the estimated 65,000 new homes that sold in July and down from the 59,000 that sold in June….the raw figures from Census field agents further allowed for estimates that the median sales price of new houses sold in August was $420,600, up slightly the estimated median sales price of $420​,000 in July, but down from the median sales price of $440,500 in August a year ago, and that the average August new home sales price was at $492,700, down from the $508,200 average sales price in July, and down from the average sales price of $530,400 average in August a year ago….a seasonally adjusted estimate of 46​7,000 new single family houses remained for sale at the end of August, which represents a 7.8 month supply at the August sales rate, up from the revised 7.3 month supply of unsold homes in July, which was originally reported as a 7.5 month supply….for more details and historical graphs on this report, see Bill McBride’s posts on this report, New Home Sales decrease to 716,000 Annual Rate in August and New Home Sales Decrease to 716,000 Annual Rate in August; Median New Home Price is Down 9% from the Peak…

 

 

(the above is the synopsis that accompanied my regular sunday morning news links emailing, which in turn was mostly selected from my weekly blog post on the global glass onion…if you’d be interested in receiving my weekly emailing of selected links, most of which are picked from the aforementioned GGO posts, contact me…)